[Obama] "didn't mention a goal of profitability."
What was once unthinkable is now the plan
Betsy's Page
When discussion began in December of what to do with the auto companies, some of us argued that the best of the bad choices was to let them go bankrupt and have a structured plan that would allow them to deal with their creditors, workers, and investors. But we were told that this was totally unthinkable and we needed to spend federal money to bail them out. So we did.
And now, guess what? It's now time to do what was once considered unthinkable.
<<< The Obama's administration's leading plan to fix General Motors Corp. and Chrysler LLC would use bankruptcy filings to purge the ailing companies of their biggest problems, including bondholder debt and retiree health-care costs, according to people familiar with the matter.
....GM looks increasingly like it will be forced into filing for bankruptcy protection, sometime in mid-to-late May, in a plan where the automaker breaks into two companies, the surviving entity a "new GM" that maintains key brands such as Chevy and Cadillac and some international units, say several people familiar with the situation.
Stakes in this new GM could be given to creditors and UAW members. It is also possible the new company could be sold whole or in parts to investors.
The auto makers could avoid bankruptcy in the next two months. >>>
And there is some brinksmanship still going on in GM's high-level talks with bondholders, union members and creditors.
And as people argued before, the crucial need is to rein in the expenses dealing with labor.
<<< A key ingredient is getting the UAW to agree to an entirely new labor contract, including major reductions in health-care benefits, according to several people involved in the matter. "That's the No.1 wildcard here," one of these people said Monday.
Under this plan, the "good" GM would not be expected to hold the tens of billions of dollars in retiree and health care obligations that hurt the auto maker in recent decades. Instead, those obligations would be transferred to an "old GM," made up of less-desirable brands like Hummer and Saturn, and underperforming plants and other assets. This part of GM would likely sit in bankruptcy much longer while a buyer is sought for the parts or it is wound down. Proceeds from the sale of old GM would go to pay claims to various creditors, including GM retirees.
"That is the plan, to the extent it comports with the bankruptcy laws," said one person familiar with the matter. >>>
Perhaps now that the President has come to the realization that more federal bailouts will not be the answer, GM and Chrysler can get on with what was inevitable.
<<< The administration says a "surgical" structured bankruptcy may be the only way forward for GM and Chrysler, and President Obama held out that prospect Monday.
"I know that when people even hear the word 'bankruptcy,' it can be a bit unsettling, so let me explain what I mean," he said. "What I am talking about is using our existing legal structure as a tool that, with the backing of the U.S. government, can make it easier for General Motors and Chrysler to quickly clear away old debts that are weighing them down so they can get back on their feet and onto a path to success; a tool that we can use, even as workers are staying on the job building cars that are being sold." >>>
We could have avoided the $17 billion that President Bush approved for this bailout.
Of course, we're now on the path with the federal government determining which companies should be bailed out and which should be go into bankruptcy and which should be given a federally-financed slow slide into bankruptcy.
And, as the WSJ points out, Obama and the Democrats still believe that, not only should they be able to squeeze out whichever executives they disapprove of (but not the union executives) but that they should be able to tell the companies which cars they should produce.
<<< Bankruptcy or not, the larger problem here is Washington's industrial policy. Even if Chrysler merges and GM restructures, Mr. Obama wants the companies to make the kind of cars the political class favors, whether or not consumers want to buy them. "The United States of America will lead the world in building the next generation of clean cars," the President said yesterday. He didn't mention a goal of profitability. To that end, Treasury tapped Fiat's know-how in small vehicles for Chrysler and wants GM to move in this direction.
Yet the Treasury's own "viability summary," released yesterday, points out that "GM's product portfolio is more vulnerable to CAFE [fuel-economy] standard increases than the portfolios of many of its competitors." Only nine of GM's "top 20 profit contributors in 2008" were cars; the rest were SUVs and trucks, which are politically incorrect on Capitol Hill and with the green lobbies. Chrysler has a similar problem. Even GM's much-vaunted electric Volt car is "too expensive to be commercially successful," according to Treasury.
In other words, Mr. Obama's industrial policy vision runs directly counter to a strategy that would get the companies back to profitability as soon as possible. To help them sell those unwanted cars, Mr. Obama yesterday was already pledging that taxpayers will cover new-car warranties. And he urged Congress to pass a new "incentive program" (read: subsidy) for "cleaner car" purchases.
All of which is to say that the taxpayer commitment to the Obama autoworks is only getting started. We're glad the Administration is at least talking a tougher line on bankruptcy than Mr. Bush. But the better route would have been to use Mr. Obama's political capital now, at the start of his term, to use bankruptcy to force the companies and their union to make the hard decisions that politics may still let them avoid.
From now on, GM and Chrysler are Mr. Obama's companies, and taxpayers should hold him accountable for every dollar they are forced to spend to save jobs for the UAW and to make cars that Americans don't necessarily want. >>>
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